Agriculture and industry

S. L. Rao

READINGS IN INDIAN AGRICULTURE & INDUSTRY: Edited by K L Krishna and Uma Kapila; Academic Foundation, 477-73/23, Bharat Ram Road, (23 Ansari Road), Daryaganj, New Delhi-110002. Rs. 995.

This is a collection of articles by 24 eminent scholars including C. H. Hanumantha Rao, V.M. Rao, Mihir Rakshit, G.S. Bhalla, K.L. Krishna, Suresh D. Tendulkar, and Isher Judge Ahluwalia. K L Krishna is a distinguished former Director of the Delhi School of Economics with the reputation of being a fine teacher and having guided a record number of students to the PhD. The book is more than a set of readings for the ‘lazy’ student who would rather like to be given select material than search through the journals for himself. Many give significant policy directions and the articles are more or less of the same length. The book is very well brought out and free from printing errors.

The book is in two parts. In the first, agriculture is surveyed for its performance since Independence, and the policy environment. The other part, on industry, covers the progress of industrialisation, growth, employment and productivity, and the effects of trade liberalisation on competition and regulation.

Hanumantha Rao points out that diversion of land from cereals cultivation to maize was a reaction to the rise in crude oil prices. This shift led to a global cereals shortage and rise in prices, which in turn hurt the cereal importing countries. But India remained largely immune to such an impact because of its programme of food subsidies for the poor and reasonably good crops. While this is not explicitly stated by any author, subsidies have kept the consumer happy but beggared the farmer. Ramesh Chand does not mention the ethanol effect in his essay on global food crisis.

In their article “modernising Indian agriculture,” V.M. Rao and Jeromi speak of the developing imbalance between physical and community dimensions. To eliminate it, they suggest making agriculture a self-regulating system, meeting the challenges of limited land and water resources, and promoting human development. Increasing subsidies on food, fertilizers, credit, etc., that take resources away from watershed development, rural electrification, flood control, and so on must be contained. Improving credit demands better outreach of financial institutions to the small and marginal farmers, credit targeting and linking self-help groups with formal credit institutions. Liberalising international trade may benefit rice, wheat, chickpeas, maize, sorghum and cotton, while groundnut, mustard and sunflower may be adversely affected.

Anant emphasises the need to recognise forward markets contracts as negotiable security, relax the restrictions some States have imposed on selling crops directly to mills, improve private storage, introduce support prices for more crops, and have simpler rules for inter-State taxation. Mihir Rakshit would like the food policy to ensure reaching the poor and the marginal farmers. Much of the food grains distributed under the Public Distribution System goes to the market. PDS cannot be replaced by food stamps because of weaknesses in identifying the deserving and a low level of private trading. He points to the subsidies mostly reaching the big and medium farmers.

Bhalla describes the limited positive impact of trade liberalisation on agriculture. He would like to remove the barriers to internal and external trade, accelerate agricultural exports and consolidation of holdings, and reform the lease market while protecting existing tenants.

Discussing the progress of industrialisation, Krishna says that while reforms were focussed on industry, output from the service sector grew much faster. In the manufacturing sector productivity was lower in the 1990s than in the 1980s.

Goldar confirms this in his essay. In the labour-intensive manufacturing segment, both output and employment growth decelerated after 1989, and Suresh Tendulkar bemoans the absence of production restructuring to boost output and export. He recommends improving agricultural productivity and increasing public investment in infrastructure for industry to grow faster.

Bala Subrahmanya repeats an old story — that small-scale industry growth has declined in employment, output, and exports because of the well-known lack of technology and credit.

Goldar says that trade liberalisation improved industrial productivity but the improvement was negated by poor agricultural growth and low capacity utilisation.

Nagesh Kumar says foreign direct investment (FDI) went mainly into services and soft technology consumer goods because of policies like local content. However the multi-nationals spent more of their turnover on R&D, software development, and global R&D. Liberalisation of the FDI policy will help but the government’s policies as a whole must change.

Nagaraj says state-owned enterprises did generally well but overall their performance was dragged down by the State Electricity Boards (SEBs) and the state-owned road corporations due to poor tariffs. Regulation for competition has been blank for some years, with the Competition Commission not functioning till recently. Pattanayak points to the need for regulation to ensure a level playing field for competitive markets.

Manish Agarwal shows that mergers and acquisitions were primarily to improve the company focus after the diversifications during the licence regime and points to the absence of M&A regulation to ensure competition. Bhattacharya says that labour laws may not have been as much of an obstacle to growth as repeatedly stated by the chambers of industry, though they need rationalisation, elimination of inconsistencies and less onerous compliance.

This is a good reference book. It is not for the lay reader, but more to enable easy access to learned articles from journals.

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